Monthly Archives: October 2018

Autumn Budget 2018

Philip Hammond, the Chancellor of the Exchequer, delivered his third Budget to Parliament on 29 October 2018 and what should be the last one before Brexit in March next year. What should you take away from this year’s Chancellor’s Autumn Budget 2018?

Mr Hammond opened the Budget by declaring it was aimed at hard-working families, ‘the strivers, the grafters and the carers’, and would pave the way for a ‘brighter future’. He set out the Government’s plan to build a stronger, more prosperous economy, building on the Spring Statement and last year’s Budget.

A number of measures and consultations were announced which perhaps demonstrate a loosening of the fiscal purse strings. However, the Chancellor concluded that although austerity is coming to an end, discipline will remain.  As well as the tax cuts and increased departmental spending, the Chancellor announced one-off bonuses for defence, schools and local authorities.

There were no widespread announcements around pensions tax relief. There had been rumours that the Chancellor may look to introduce a flat-rate of tax relief, but in the end there were only more minor changes to the pensions landscape.

From a tax perspective, there is a short-term tax giveaway for the next couple of years to encourage consumer and business spending whilst the process of a Brexit deal is worked through.

Individual taxpayers will benefit from the increase in the personal allowance to £12,500 and the higher-rate threshold to £50,000 from April 2019. However, the self-employed will continue to pay Class 2 NICs.

Businesses will also benefit from a two-year increase in the annual investment allowance to £1m, which allows an upfront tax deduction for capital expenditure on plant and machinery.

The Chancellor left us with a warning that if the financial forecast was adversely impacted by the Brexit negotiations, then next year’s Spring Statement could be upgraded to a full Budget.

Click here to read our full Autumn Budget 2018 Guide.

As pensions, savings and estate planning were largely untouched, now is an opportune time to make the most of valuable tax allowances, reliefs and exemptions that already exist – especially as this could be a short-term window of opportunity, with only months to go to Brexit.

To review what action you may need to take to keep your personal and business plans on track, or if you have any further questions, please contact us.

3 Ways to Know When You Are Ready to Retire

There’s a pretty good chance that your parents or grandparents retired simply because they reached age 60 or 65. However, today’s retirement is a bit more complicated than that and I’m not just talking about the changes that have been made to state pension age.

Whilst age is still an important factor, your ability to connect your financial resources to your lifestyle goals is what will truly determine if you’re ready to retire. Here are three important markers to cross before you crack open your nest egg:

1. You’re financially ready.

The most common question we field from our clients is, “How much do I need to retire?” While there’s no magic number to hit, a few key checkpoints are:

– You have a budget. Many clients who are preparing to retire tell us they’ve never kept a budget before. Time to start! If you have any big plans for early in your retirement, like remodelling your home or a dream holiday, let us know so we can discuss and model this expenditure to ensure it can be achieved.

– Your debts are paid. No, you don’t necessarily need to pay off a fixed-rate mortgage before you retire. But try to reduce or eliminate credit card balances and any other loans that are charging you interest.

– Your age, pension funds, and state pension benefits are in sync. If you’re planning on retiring early, be sure that your pension provider won’t charge you any early withdrawal penalties for which you’re not prepared. Ensure you have maximised National Insurance to provide a full state pension entitlement.

2. You’re emotionally ready.

We spend so much of our lives working that our jobs become a large part of our identities. Rediscovering who we are once we stop working can be a major retirement challenge. To prepare for this emotional transition:

– Talk to your spouse ahead of time. Don’t wait until your last day of work to discuss how both of you feel about retirement. What do each of you imagine life will be like? What are the things you’re excited to do? What are you afraid of? What can each of you do to make this new phase of life as fulfilling as possible?

– Make a list. What are the things you’re passionate about? Something you’ve always wished you knew more about? A skill you’d like to develop? A cause that’s important to you? A great business idea that was too ambitious for your former employer?

– Check that your estate planning is up to date. It’s understandable that many people avoid this part of their retirement planning. But putting together a legacy that could impact your family and community for generations can have tremendous emotional benefits. The peace of mind that comes from knowing the people you care about are taken care of can empower you to worry a little less and enjoy your retirement more.

3. You’re ready to do new things.

Ideally, the financial piece of this conversation should make you feel free enough to create a new retirement schedule based on the emotional piece. Plan your days around the people and passions that get you out of bed in the morning. Some ideas:

– Work at something you love. Take a part-time job at a company that interests you. Turn that crazy idea you couldn’t sell to your old boss into your own business. Consult. Teach. Volunteer.

– Keep learning. Brush up your school French by enrolling in an online course. Learn some basic web design so you can showcase your photography portfolio or sign up for cooking classes and get some new meals in your weekly rotation.

– Get better at having fun. What’s the best way to lower your handicap or perfect your backhand? Take lessons from a pro. The second best? Organize weekly games with friends and family.

– Travel. Planning out a big holiday can be a fun project for couples to do to together. And while you’re looking forward to that dream trip, take a few weekend jaunts out of town. Stay at the new hotel you keep hearing about. Visit your grandkids. Go on the road with a favourite sports team and enjoy the local flavour in a different city.

If you’re nearing retirement and struggling with these issues, working with us might provide some clarity.  Why not give us a call to discuss how we can help get you ready for the best retirement possible with the money you have?

Warning – The information noted above is for general information only and is not intended as personal advice.  Carpenter Rees does not accept any liability for your reliance upon, or any errors or omissions.

 

Protecting those that matter

Many of us spend time planning our future with the intention that our plans will come good. But making sure that you and your family can cope if you fall ill or die prematurely is something we can too easily put to one side. In particular, a recent study identified that financial protection is something that millions of fathers in the UK, and their families, could benefit from.

More than half (58%) of men in the UK with dependent children have no life insurance, meaning that just over 4.5 million dads[1] are leaving their families in a precarious situation if the unforeseen were to happen. Worryingly, this has increased by five percentage points compared with 2017, a year-on-year increase of around 542,000 individuals[2].

Financial hardship

Despite a fifth (20%) of dads admitting their household wouldn’t survive financially if they lost their income due to long-term illness, only 18% have a critical illness policy, leaving many more millions at risk of financial hardship if they were to become seriously ill.

Critical illness insurance – this doesn’t usually pay out if you pass away, so it’s not always suitable if you want to make sure your family are provided for after you’ve gone. This is where life insurance comes in.  However, this type of insurance covers serious illnesses listed within a policy. If you get one of these illnesses, a critical illness policy will pay out a tax-free, one-off payment. This can help pay for your mortgage, rent, debts, or alterations to your home, such as wheelchair access, should you need it.

Life insurance – this insurance usually only pays out if you pass away. It’s designed to help your family maintain their lifestyle after you’ve gone, for example, to pay off a mortgage or other loans and provide for children’s university fees.

Many insurers will offer both types of cover combined.

No savings

If they were unable to work due to serious illness, 16% of fathers say they could only pay their household bills for a minimum of three months. More than two fifths (45%) say they’d have to dip into their savings to manage financially, but 17% admit that their savings would last for a maximum of just three months, and 12% say they have no savings at all.

On top of this, many fathers are leaving themselves and their families unprepared for other aspects of illness or bereavement. 16% of them aren’t sure who would take care of them if they fell ill, and more than two fifths (42%) don’t have the protection of a Will, power of attorney, guardianship or trust arrangement in place for their families.

Risky position

This is an especially risky position for the two thirds (66%) of UK fathers who are the main breadwinner in the family, and it’s clear that many are in lack of a ‘Plan B’.

Many fathers don’t consider having insurance as a necessity, with 16% of those without saying they don’t see critical illness cover as a financial priority, and 20% saying they don’t think they need it. The value of protection, however, is to provide long-term peace of mind about having financial security in place for your dependents.

Seek advice

Life is full of uncertainties – and while we insure cars, houses and even holiday arrangements, when it comes to ourselves and our family, often insurance is overlooked and undervalued. The simple truth is we can get too ill to carry on working or tragically die too soon, either through serious illness or accident. These events are random, and they can potentially affect us all.  

Recent changes to bereavement benefits, and their continued unavailability to those in cohabiting relationships, mean that it’s more important than ever for fathers to review their financial protection needs and seek advice to make sure their household is covered.

Unforeseen circumstance

 The impact of losing the family breadwinner can be devastating – missed mortgage repayments, savings depleted, your home being sold, your family’s standard of living eroded, with stress and worry all too evident.

 Whether it is your family or other loved ones, it’s essential to make sure that the people and things that matter to you are taken care of – whatever life throws at you.

Creating a durable plan for the future

We understand that expert advice on financial matters is invaluable in creating a durable plan for the future. To discuss what’s best for you and your family if the unforeseen were to happen, contact us so we can find the solution that’s right for you.

Source data:

All figures, unless otherwise stated, are from Opinium Research. The survey was conducted online between 5 and 12 April 2018, with a sample of 5,022 nationally representative UK adults.

[1] Percentage of adult population that are fathers with dependents = 762/5022 = 15.17%; 15.17% of adult population of 51,767,000 = 7,854,730 million; 58% of these don’t have cover so 4,545,848 million

[2] Percentage of adult population that are fathers with dependents = 735/5077 = 14.48%; 14.48% of adult population of 51,767,000 = 7,495,861 million; 53% of these don’t have cover so 4,003,721. Difference of 542,127 compared with 2017

Warnings:

Protection plans usually have no cash in value at any time and will cease at the end of the term.  If premiums are not maintained, the cover will lapse. 

Critical illness plans may not cover all the definitions of a critical illness.  The definitions vary between providers and will be described in the key features and policy documents if you go ahead with a plan.  

 

 

4 Things to Consider Before Financially Bailing Out Your Adult Children

I read an article recently and whilst it was based upon research undertaken in the US, I suspect there are likely to be similarities in the UK which is why I found the article thought-provoking.

The article suggested that according to a recent American study by TD Ameritrade, 25% of baby boomers are supporting their family members financially¹, with support to adult children averaging out to $10,000 per year. That’s $10,000 per year that parents aren’t saving.

Can your retirement afford that kind of generosity?

If you fall short of your retirement goals, is the adult you’re bailing out going to bail you out during your golden years?

So, before you write your ‘struggling young adult’ another big cheque, ask yourself these four key questions:

1. What, specifically, is this money for?

The key word here is SPECIFICALLY.

Many parents tend to err on the side of protecting their child’s feelings when weighing financial support. We know asking for money can be embarrassing, and we don’t want to deepen that embarrassment. Or we’re worried that if we ask too many questions the child will become frustrated and hide serious problems from us going forward.

These are understandable concerns. But it’s also important that you understand whether your child needs support because of something beyond his or her control (a car accident, serious health issues, unexpected job loss) or because they’re struggling with basic adult responsibilities. If your child is making poor budgeting decisions or settling for underemployment, you may be throwing good money after bad.

Be tactful but get to the root problem before you decide if your money is the best solution.

2. What is the real cost to me?

Many parents are already helping their adult children more than they realise.

For example, you might not think much of funding your adult children’s mobile phone or piggyback on the Netflix subscription. After all, it’s only £30 a month, right?

But how long have you been giving your child that monthly free pass? Years? You can also set time limits. For example, tell your child they have their mobile phone bill funded until age 25 or until they get married, whichever comes first.

Are you helping with larger monthly expenses, like car payments? When will it finally be time to pull the plug?

Get it all down on paper. Make a spreadsheet that accounts for the financial support you’re already giving your child, large and small. Seeing how even small expenses accumulate over time will be eye-opening for both of you and help inform a good decision.

3. What are the terms of the bailout?

This is another area that parents tend to tiptoe around because they’re afraid of insulting their children. But do you know of any bank that’s going to loan your kids money indefinitely, charge no interest, and ask for no repayment? Then why should your money be subject to such lousy terms?

Your children have to understand that your generosity is not open-ended, especially as you near retirement age. You’ve probably made many sacrifices for them already. You should not sacrifice your financial security or the nest egg that is meant to support you in retirement.
If your children want you to “be the bank,” then you have every right to act like one. Set clear terms in writing, including a repayment schedule. In more serious cases, you might want to bring us a copy of this agreement so that we can include it in your estate plan.

4. How else can I help?

It’s very likely that your child spent 11 or more years in school without learning a single thing about managing money. Financial literacy just isn’t taught in schools. This knowledge gap could be a big reason your young adult is struggling.

A BMO Wealth Institute survey found that two-third of parents give money to adult children when a sudden need arises². Does your child need money suddenly because he or she doesn’t know how to budget? Help find that balance between covering current expenses and contributing to savings and investment accounts.

Housing and transport costs can be a shock to recent college leavers. You could help your child negotiate a car lease. You might help a child who’s already chasing after the Joneses by counselling against a rash home purchase that will stretch his or her finances thin.
Introducing your underemployed child to some of your professional connections might lead to a significant career upgrade.
One key connection you should be sure to tap: your financial adviser! We’re always happy to help our clients’ adult children get on their feet. We consider this a service to our clients because we know that the less you’re worried about supporting your children, the more secure your own retirement goals will be.

Sources

¹ https://s1.q4cdn.com/959385532/files/doc_downloads/research/TDA-Financial-Support-Study-2015.pdf

² https://wealth.bmoharris.com/media/resource_pdf/bmowi-bank-of-mom-and-dad.pdf

Empower Yourself by Recognising Your Freedom to Choose

“When we are no longer able to change a situation, we are challenged to change ourselves.”
– Viktor Frank

We may not always be able to control the circumstances of a given situation we find ourselves in, but we always have the freedom to choose how we respond. The choice we make – and how we make it – often determines how well we survive the situation, and if we go on to thrive.
If challenges in your family life, your career, or your finances are making you feel powerless, try approaching the challenge from a new angle.

This simple three-step process can put you back in touch with your freedom to choose how and why you live your life.

1. Consider your reaction.
Take a step back from the problem. Take a breath. Take a walk. Pour yourself a cup of coffee.

By creating some space, you’ll be able to ask yourself, “Why am I reacting the way that I’m reacting? Is there a better perspective I could be taking? Am I letting past experiences influence my reaction for better? For worse?”

When we feel overwhelmed by a challenge, we often fall back on established patterns in our thinking. Often these default reactions are negative. If we’re arguing with our spouse, we might replay past arguments in the back of our heads. Financial difficulty might trigger memories of our parents struggling with money as we were growing up.

Identifying the negative experiences and perspectives that create our immediate reactions to challenges can help us find ways to create more positive and empowering reactions.

2. Consider your purpose.
Instead of allowing the situation to dictate how you’re responding, push back. Refocus how you choose to respond around the goal that you are trying to accomplish.

For example, if your business partner backs out of the new business you’ve been planning to start, that loss of manpower and capital could make you feel defeated and powerless. But the reality is that you are choosing to dwell on negatives that you can’t control.
So, what can you control?

If you’re really committed to starting your new business, you can choose instead to focus on alternative funding sources. You can talk to other friends, family, and colleagues about potential partnerships. You can choose to work on Plan B.

Another example is the investor who feels powerless as market volatility chips away at his nest egg over a quarter. No, you can’t control the natural disaster or political spat that’s giving the market fits right now. But you can choose to focus on your long-term purpose: a secure retirement for you and your family. That positive thinking and big-picture perspective could prevent a costly knee-jerk reaction.

3. Consider your values
One of the best ways to drive negative thinking from our reactions is to focus on the things that matter the most to us. Reconnecting our decision making to our values can lead to solutions that make life more fulfilling.

Work might be the most common source of challenges in our lives. And while no one loves absolutely everything about their job all the time, it’s worth considering how your job affects your sense of freedom. Do those 35 hours per week give you the financial resources to spend your free time doing what you want with the people you love? Are your skills and talents used in ways that make you feel like you’re making positive contributions? Does your employer have a mission bigger than profit that’s important to you?

If your answers are no, no, and no, you can choose to keep dragging yourself out of bed every Monday, resigned to the uninspiring week ahead. Or you can follow your values towards a more empowering choice. Consider a career change. Learn a new skill that will bolster your c.v. or line you up for a better job at your current employer.

If switching careers is really out of the question right now, choose to appreciate the parts of your job that you do well because of your unique skillset. And when you’re not working, make time for the hobbies, interests, and experiences that do fully engage your core values. Who knows? One day these pursuits might lead to exciting new opportunities for you and your family. If you’ve been committed to your values all along, you’ll be ready to make the right choice.